Economic Analysis from the Macro Perspective

Abstract

This segment of the book contains an analysis of the extent of profit shifting in 10 post-communist EU countries. To solve this problem, a macroeconomic approach and data from the balances of payments and investment positions of these 10 countries are used. The methodological approaches to the measurement of profit shifting, tax base erosion and the overall estimation of corporate tax revenue losses are explained in detail in the “Methodological Approaches to the Measurement of Profit Shifting and Tax Base Erosion”. Estimates are made using the indicator rate of return on foreign direct investment (FDI) and through identifying excessive cross-border flows for selected balance of payments items. The analysis showed that these payments are skewed in favour of the post-communist EU countries. The effect is most pronounced for interest and royalty payments.